Yelp Gets Nailed With A Bad Review: Piper Jaffray Downgrades

As consumers seek more bite-sized, on-the-go service reviews, they’re losing appetite for Yelp Inc YELP and convincing one analyst to try elsewhere.

The Rating

Piper Jaffray’s Sam Kemp downgraded Yelp to an Underweight rating and lowered the price target from $38 to $37.

The Thesis

Piper Jaffray expects Yelp to guide below consensus for 2018 revenue in light of higher operating expenses and growth challenges.

“Near-term, due to the messiness of removing Eat24, we believe investors missed that Yelp lowered organic Q4 guidance by about 2 percent,” Kemp said in a Thursday note. “This suggests headwinds, which Yelp appears to be attempting to offset by re-accelerating sales hiring.”

At the same time, a consumer shift toward Facebook Inc FB and Alphabet Inc GOOGL’s recommendation tools are forecasted to cut Yelp’s traffic and user growth, compounding the effects of weak advertiser relations.

“We believe Yelp's strategic value is declining alongside the relative importance of long-form reviews as consumers increasingly depend on short-form information from social, search and maps for local businesses,” Kemp said. 

At the same time, he rejects takeover theories due to Yelp’s expensive enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple.

Price Change

Yelp fell 3.5 percent premarket on the downgrade. At the time of publication, it was trading down 2.7 percent at $40.77.

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